News Analysis: Poor economic sentiment in Italy impacting eurozone

Source: Xinhua| 2019-06-28 04:40:36|Editor: Mu Xuequan
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ROME, June 27 (Xinhua) -- Economic sentiment across the 19-nation eurozone fell to its lowest level since 2016, with Italy leading the way with slow economic growth, stubborn unemployment levels, and even record high temperatures taking a toll.

The European Commission reported Thursday that its economic confidence indicator fell to 103.3 points in June, down nearly two full points compared to May. The last time the indicator was so low was in August 2016. So far this year, the economic confidence indicator fell in five of six months.

Italy, which has the third largest economy in the euro zone, was 18th out of the 19 eurozone countries in terms of the drop in economic sentiment.

Analysts said that for the eurozone as a whole, the drop in economic sentiment could have a silver lining -- though that may not hold for Italy.

"With falling economic confidence, the European Central Bank will probably choose to loosen monetary policy in the coming months as a way to help revitalize the eurozone economies," Javier Noriega, chief economist with Hildebrandt and Ferrar in Milan, told Xinhua.

Noriega and other analysts said that would have a smaller impact on Italy than on other eurozone member states since Italy's economic troubles are structural.

"If other economies in Europe improve, that will help Italy's export sector," Noriega said. "But Italy has too high a tax burden, too many inefficiencies. Better exports and a freer monetary policy will only go so far."

Early indications are that the Italian economy will probably contract in the second quarter of 2019, which ends Sunday. That would be the third time in four economic quarters that the economy shrank, with the one quarter of economic growth coming in the first quarter of this year with a very modest 0.1 percent expansion that ended what had been a technical recession over the second half of 2018.

Continued slow growth in Italy carries risks bigger than falling economic sentiment, according to economist Aldo Napolitano, a fellow with Larentia, an economic think tank.

"Without robust growth, the Italian government will have no way to meet its deficit targets while also maintaining its electoral promises," Napolitano said in an interview. "We have seen in the past that it will have no problem clashing with the European Commission on budgetary matters. And if that happens it can have severe consequences."

Last year, the government locked horns with European commissioners for eight weeks over what the commissioners said was an unsustainable budget deficit for this year. The two sides compromised, and since then higher spending and slow growth have combined to balloon the deficit to well above target levels.

"It's no wonder economic sentiment is falling in Italy," Napolitano said. "Slow growth, no jobs, and now one of the hottest summers on record all across the country. There isn't much to be optimistic about."

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